ktk INC.

Because the Group holds inventory based on demand forecasts, if forecasted demand does not materialize due to market changes or customer circumstances, there is a risk of recording valuation losses or disposal losses. In addition, rising raw material costs, difficulty in procurement, and sharp fluctuations in exchange rates may make stable product procurement impossible, potentially leading to lost sales opportunities. Although the Group requests suppliers to ensure stable supply, it may not always be able to fully respond to changes in the socioeconomic environment.

Technological advances in laser printers, copiers, and multifunction devices are significant, creating a risk that the Group's core reuse products (repacked toner) could become obsolete. The Group continues to develop and improve reuse products in cooperation with business alliance partners, but if its response to new technologies is delayed, its competitiveness relative to competitors may decline, potentially affecting business performance.

In the reused toner cartridge industry, the relationship between intellectual property rights held by manufacturers and the reuse business is complex, and as illustrated by the 2007 Supreme Court ruling (a final judgment concerning patent infringement), risk exists across the industry as a whole. While the Group is not currently involved in any litigation, the possibility cannot be entirely excluded that it may face claims for damages or injunctions from third parties in the future. There is also a risk of infringing other companies' intellectual property rights in promotional materials, websites, and the like.

The Group has established a basic information security policy and strives to maintain and manage it, but if an information system outage, leakage of personal or customer information, or unauthorized intrusion by computer viruses or hackers occurs, it could damage the corporate image and erode trust. In the event of a personal information leak, in addition to a decline in brand value, substantial costs may also be incurred.

Although the Komagane Plant has obtained ISO9001 certification and established a quality management system, it cannot fully guarantee that no quality issues will occur across all products. While the Group carries product liability insurance, there is no assurance that it will sufficiently cover the amount of damages, and if a major quality issue occurs, it could lead to expanded losses and a decline in corporate reputation. There is also a risk of adverse effects on customers' skin or health in the cosmetics and dietary supplement businesses.

If defects or malfunctions occur in the Group's proprietary systems such as "KTK YORIDORI," "KTK Hassuru Net," and "TryAngle," this could result in claims for damages or a loss of trust. The Group is highly dependent on communication networks, and network outages caused by natural disasters or failures of e-commerce sites operated by other companies could result in lost sales opportunities.

Because the Group's business structure centers on supplying office products to domestic companies, it is directly susceptible to fluctuations in Japan's domestic economy. A decline in purchasing demand due to weak corporate performance, reductions in delivery prices resulting from changes in customers' procurement policies, and unexpected termination of contracts may significantly affect business performance.

In the reused toner cartridge market, there are many new entrants from both competitors and other industries, which may lead to declining sales prices due to intensifying competition. In the OA-related products, IT solutions, and services fields, barriers to entry for manufacturer sales agencies are also low, and new entrants may erode the Group's competitive advantage.

In corporate acquisitions and business alliances undertaken to expand its business, it may be difficult to forecast the future performance of investee companies, and if their performance deteriorates, impairment of goodwill or similar items may occur, affecting business performance and financial condition. Business restructuring, such as withdrawal from unprofitable businesses, reorganization of subsidiaries and affiliated companies, and reorganization of manufacturing and logistics sites, may also affect business performance and financial condition.

The Group is subject to the Act on Specified Commercial Transactions and the Act against Unjustifiable Premiums and Misleading Representations in its mail-order sales business, and to the Pharmaceuticals and Medical Devices Act, the Food Sanitation Act, and the Nutrition Improvement Act, among others, in its manufacturing and sale of cosmetics and dietary supplements; violations of these regulations could affect business performance. In addition, the Type A continuous employment support facilities operated by Group companies are subject to regulation under the Comprehensive Support for Persons with Disabilities Act, and a shortage of specialized staff or changes to compensation and support systems resulting from legal amendments may affect business performance.